T-1206-74
Crown Trust Company as Trustee of Suburban
Realty Trust (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Addy J.—Montreal, April 26;
Ottawa, May 2, 1977.
Income tax — Allocation of purchase price between depre-
ciable and non-depreciable portions of real estate — Munic
ipal valuation key factor — Contradictory assessments —
Income Tax Act, R.S.C. 1952, c. 148, s. 20(6)(g) — Charter of
the City of Montreal, 1960, S.Q. 1959-60, c. 102.
In December 1969, the plaintiff sold revenue-producing
apartment buildings to a third party. For that taxation year,
the Minister assessed the same asset, the lands or undepreciable
portion of the real estate, at a much lower value for the
plaintiff than for the purchaser. The plaintiff appealed the
assessment. A special order made under section 174(3)(b) of
the Income Tax Act ordered that the purchasers be added as a
party, and that the trial determine the portion of the aggregate
purchase price to be allocated to the buildings and the land.
Held, the appeal is allowed. Pursuant to section 20(6)(g), in
order to determine what part of the total amount can be
"reasonably regarded" as being consideration for the disposi
tion of the lands as opposed to the buildings, the court must
consider the whole; each of the two elements constituting the
whole must necessarily be subject to whatever advantages or
disadvantages actually flow from the existence, nature, site, use
and condition of the other as well as whatever other factors
might affect the desirability, marketability and investment
value of the other. Whether the Minister has made, for the
same taxation year regarding the same asset, two absolutely
contradictory and mutually exclusive assessments arising out of
the same transaction, it would be ludicrous for the Court to
allow the Minister, in such a case, to enjoy the benefit of the
burden of proof which he normally enjoys in assessment appeal
cases, since the Minister is, in the same action, seeking to have
the Court confirm two contradictory statements.
The Turnbull Real Estate Company v. The King, Corkery
v. The King, DeBury v. The King (1903) 33 S.C.R. 677,
followed.
INCOME tax appeal.
COUNSEL:
Richard W. Pound for plaintiff.
Roger Roy and Marc Boivin for defendant.
Louis Bass (himself) for joined parties.
SOLICITORS:
Stikeman, Elliott, Tamaki, Mercier & Robb,
Montreal, for plaintiff.
Deputy Attorney General of Canada for
defendant.
Schlesinger & Schlesinger, Montreal, for
joined parties.
The following are the reasons for judgment
rendered in English by
ADDY J.: This action, as originally constituted,
consisted of an appeal by the plaintiff of an assess
ment for income tax purposes for the taxation year
1969, of revenue-producing apartment buildings in
Montreal sold by the plaintiff on the 30th of
December 1969 to Louis Bass, Bennie Bass and
Moe Bass (hereinafter referred to as "the Bass
brothers").
By re-assessment notices, issued at various inter
vals, the Minister assessed the non-depreciable
portions of the real estate, that is the lands, in so
far as the plaintiff was concerned at an amount of
$169,000 and for the same year in so far as the
Bass brothers are concerned, at an amount of
$350,089.
Before trial, by special order pursuant to section
174(3)(b) of the Income Tax Act, the Bass broth
ers were joined in the action as parties and it was
further ordered that the question to be determined
at trial would be the following:
For the purpose of paragraph 20(6)(g) of the Act, what portion
of the aggregate price of certain land, buildings and equipment
located on Grenet Street in the City of St. Laurent in the
amount of $1,335,000, sold on December 30, 1969, by the
Plaintiff to the Joined Parties can reasonably be regarded as
attributable to the land and buildings respectively?
The price paid on the 30th of December 1969
for the lands, buildings and equipment was
$1,335,000. It is not disputed that the value of the
equipment was $18,000. The consideration for the
lands and buildings was therefore $1,317,000.
Since no one has attempted to establish that the
purchase price of $1,317,000 paid on the 30th of
December 1969, as aforesaid, did not represent the
fair market price at that time of both lands and
buildings as a whole, and since the transaction was
an arm's length one, and both the vendor and the
purchasers were obviously astute and well-
informed parties and, finally, since the vendor was
under no particular pressure to sell and the pur
chasers had no particular need for that specific
property, I find no difficulty in coming to the
conclusion that the price paid represented the
actual or real value of both the lands and build
ings. In other words, the purchasers paid neither
too much nor too little for either the lands or the
buildings when they purchased the whole.
The expert called by the plaintiff gave no con
sideration whatsoever to the value of the lands as
they existed in 1969, that is, with the apartment
buildings actually erected on them; on the con
trary, in accordance with his instructions, he
valued the lands as if they were completely vacant
and made no inspection or valuation of the build
ings. This was a completely improper approach
and is of little assistance to the Court; pursuant to
section 20(6)(g), in order to determine what part
of the total amount can be "reasonably regarded"
as being consideration for the disposition of the
lands as opposed to the buildings, the Court must
consider the whole; each of the two elements con
stituting the whole must necessarily be subject to
whatever advantages or disadvantages actually
flow from the existence, nature, site, use and con
dition of the other as well as whatever other
factors might affect the desirability, marketability
and investment value of the other.
No other expert real estate valuation evidence
whatsoever was offered and the Court is left only
with the valuations for municipal assessment pur
poses. The Court is permitted to use municipal
assessments in arriving at a valuation of property.
(See The Turnbull Real Estate Company v. The
King; Corkery v. The King; DeBury v. The King'.)
Section 818(c) of the Charter of the City of
Montreal, 1960 2 , which governs assessments
within the City of Montreal, requires that the
assessment rolls reflect the "actual value of the
immovables and, separately, that of the lots and
that of the buildings thereon erected". It appears
therefore that assessors in Montreal are obliged by
law to assess both lands and buildings in accord
' (1903) 33 S.C.R. 677.
2 S.Q. 1959-60, c. 102.
ance with their actual value. A similar provision
exists in the Cities and Towns Act 3 which governs
the remainder of the Province Of Quebec. There
was some evidence that, as a result of a study
made of some areas in Montreal, it was found that
in 1976, realty there had been assessed at that
time at about 90% of actual value. There is no
evidence as to what the situation was in 1969. In
any event, if the assessors were not in 1969 assess
ing strictly in accordance with actual value, there
is still no reason to conclude or even suspect that
they were not applying the same variation from
either current market price or actual value to both
lands and buildings, whatever that variation might
be.
In view of there being no evidence to the con
trary, I find that, on the balance of probabilities,
the proportion which the municipal valuation of
the land for the year 1969-70 bears to that of the
whole is the correct one. The municipal valuation
or assessment for taxation year 1969-70 of $217,-
050 for the lands and $1,313,500 for the buildings,
establishes a proportion of 14.18% of the value as
being attributable to the lands.
On applying that proportion to the value of the
whole, as determined by the above-mentioned sale
price of $1,317,000 paid for the lands and build
ings, one arrives at the amount of $186,750. I find
that amount to be the portion of the aggregate
price of the lands, buildings and equipment con
cerned in this action which can reasonably be
regarded as attributable to the lands and the bal
ance, namely $1,130,250, as attributable to the
buildings.
The assessments of the plaintiff and of the Bass
brothers for the taxation year 1969 will therefore
be referred back to the Minister for re-assessment
in accordance with these figures.
Before dealing with the question of costs, I
would like to add that where, as in the present
case, the Minister has made for the same taxation
year regarding the same asset, two absolutely con
tradictory and mutually exclusive assessments aris
ing out of the same transaction, it would be ludi
crous for the Court to allow the Minister, in such a
case, to enjoy the benefit of the burden of proof
which he normally enjoys in assessment appeal
3 R.S.Q. 1964, c. 193, s. 485(1).
cases, since the Minister is, in the same action,
seeking to have the Court confirm two contradicto
ry statements.
Counsel for the plaintiff, at trial, requested costs
on the solicitor-and-client basis in any event of the
cause and the question of costs was argued before
me.
Although there appears to be no legal bar to the
Minister assessing two different amounts for the
same asset in the same taxation year when the
value to be determined arises out of the same
transaction, I feel that this custom is highly
improper and fundamentally unfair and constitutes
the kind of conduct which is most likely to bring
the taxing authority into disrepute.
As previously stated, the servants of the defend
ant, in the case at bar, valued the lands at the time
of sale at $169,000 in so far as the plaintiff was
concerned. The plaintiff contested that assessment,
claiming in its statement of claim that the lands
were worth $350,089. The defendant's assessors,
while still maintaining the valuation of $169,000
against the plaintiff who was the vendor, then
deliberately used the very figure alleged by the
plaintiff of $350,089 and issued a supplementary
assessment in that amount against the purchasers,
the Bass brothers. The Minister confirmed this
last-mentioned assessment.
The defendant then made a motion to have the
Bass brothers joined and subsequently sat back
quite confidently allowing the two sets of taxpay
ers to fight it out among themselves and have the
Court decide who should pay the piper.
Assessors of the Department of National Reve
nue in issuing assessments owe a duty to the public
in general and to the taxpayers concerned by the
assessment in particular, to do so in a bona fide
and conscientious manner. The provisions of the
Income Tax Aci are not intended to allow them to
merely issue figures indiscriminately nor the Min
ister to subsequently confirm those figures with
obvious disregard to the value of the asset and then
oblige taxpayers to resort to the courts to do what
they should have done in the first place in accord
ance with their statutory duty, namely, to make an
honest attempt to determine what a reasonable
value really is.
For the above reasons, I am allowing both the
plaintiff and the Bass brothers their costs through
out on a solicitor-and-client basis, except that the
fees of the witnesses Mr. Bigras and Mr. Attes
shall be taxed on a party-and-party basis and that
of the aforesaid witness Mr. Attes, shall be taxed
as an ordinary witness and not as an expert since
he was not allowed to testify as such at the trial.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.